Should Financial Planners Implement Their Own Plans? – upd May 2015

One of the seamier sides of the financial services industry is reps and agents who use financial plans to help them sell investment and insurance products.

Common Need

Let’s face it everyone needs a financial plan. It is your roadmap for achieving your financial goals. It is this common need that makes the financial planning process so perilous.

Major Conflict of Interest

Sales representatives and agents cannot be paid fees for their financial planning services. They have to be paid commissions. That means they have to load their “plans” up with investment and insurance products that pay them and their firms the biggest commissions. It does not matter if your plan is complete garbage. The advisor and the firm are paid upfront.

How Big is the Problem? 

Just a few years ago it was estimated that 70% of all financial planners were insurance agents. Why? People put up automatic sales resistance when agents approach them. The insurance industry is infamous for high sales pressure. It is much easier to introduce yourself as a financial planner. All of that sales resistance goes away because people need planning. Consequently, millions of Americans have financial plans that are not worth the paper they are printed on.

No Regulations

There are no tests or licenses for so-called financial planners. And, there are no regulations that limit who can claim to be a financial planner. Anyone can make this claim. Agents who sell life insurance can make this claim. Investment representatives with three months of financial service industry experience can make this claim. There are no regulations because the financial service industry makes more money when there are no regulations.

The Financial Plan

Let’s assume an insurance agent developed your financial plan. You should not be surprised when you find the plan recommends the purchase of large amounts of life insurance,  This is the only way the insurance agent can get paid a big commission. Or, there is the investment representative with a Series 6 license? His plan recommends a lot of load mutual funds and variable annuities. These are the recommendations that pay him big commissions.

Five Rules that Protect Your Interests

Following are five rules that will help you protect your financial interests from reps and agents who masquerade as financial planners.

1. Never buy a financial plan from a representative or agent whose only method of compensation is a commission.

2. Pay a fixed or hourly fee for the plan. Or, the plan can be rolled into an investment service that pays the planner an asset-based (% of assets) fee. The key is to always pay a fee.

3. Do not believe for one minute that there is such a thing as a free financial plan. Free means you do not know who is paying the rep or how much. Reps and agents can make tens of thousands of dollars from a “free” lunch and a “free” plan.

4. Require full, written disclosure from the planners: Education, experience, certifications (CFP®, CPA/PFS®, ChFC®), compliance record, compensation, and all expenses that will be deducted from your accounts.

5. Have your plan reviewed by another professional you trust (CPA® or attorney). Ask them to look for conflicts of interest.

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